Investing vs Saving

Should you be investing or saving? Should you do both at the same time or just one?

Short answer: you should be doing both as there is a time and a place for both!

Let’s start with defining the two.

Savings is when you put your money in a traditional financial institution. The interest rate is often lower but your money isn’t subjected to any volatility and will be there when you need it.

Investing, in this context, is when you put your money into the stock market. Usually, this option has more volatility in comparison to the traditional savings method but has the potential for much higher returns. The investing option has a longer timeline and there’s no guarantee that your original investment won’t decrease.

My personal rule of thumb is to use savings for my emergency fund and if I’m setting aside money for a big purchase that I plan on doing in the short term – things like vacation, home renos, etc.

My investing strategy is money I will not need in the short term nor do I have a plan for it. It’s intended to stay in the market for a few years, minimum. Usually, I invest through a Tax Free Savings Account (because we all like taking advantage of tax free options) and stick to ETFSs or stocks in companies that I feel comfortable with.

When I first started my personal finance journey, my first priority was contributing to my savings account so I could have the security should anything unplanned happen – job loss, appliance replacement, any emergency.

After my savings account had built up enough, I started contributing to my investments and building up my portfolio.

I believe that contributing to both financial instruments is very important to a good personal finance strategy!